Lending money to friend for house purchase

shikata_ga_nai

I hope this is the right forum to ask in.

I have friends (a couple) who plan to buy a house in the UK. They are currently living abroad and plan to initially let the house out until they eventually return. They have saved most of the price of the house already but need a further £30k-ish. Their mortgage deal fell through somehow and now I'm considering whether I should lend the needed money to them instead.

The LTV is under 30% so there is little chance of them falling into negative equity. However I'm unsure what lending would entail in practice. I understand the need to protect myself should they get into financial difficulty or get run over by a bus, so the loan should be secured against the house. I imagine I might need a lawyer's help to get the contract done correctly... What sort of costs would there be? What other pitfalls are there?

Also, even for someone living abroad, it seems odd to me that they can't get a mortgage with <30% LTV. Should this be ringing alarm bells or is this just how broke our banks are these days?

I know this is not an everyday situation but surely someone here has been there before. I'd appreciate any criticism of the idea but hope it goes beyond just saying "neither a borrower nor a lender be".

Jowo_2

shikata_ga_nai wrote: »

Also, even for someone living abroad, it seems odd to me that they can't get a mortgage with <30% LTV. Should this be ringing alarm bells or is this just how broke our banks are these days?

I'd appreciate any criticism of the idea but hope it goes beyond just saying "neither a borrower nor a lender be".

Their financial constraints are not your problem. While you are dismissive of the 'nether a borrower not a lender be' there is always significant risk in adding a business relationship to a personal one which can ruin the personal relationship. You are not a commercial entity. If they want to invest in their property business, that's what commercial lenders are for.

I know this is harsh but business and friendship doesn't mix.

Rockporkchop

shikata_ga_nai wrote: »

Also, even for someone living abroad, it seems odd to me that they can't get a mortgage with <30% LTV. Should this be ringing alarm bells or is this just how broke our banks are these days?

This would be ringing alarm bells for me too. With such a low LTV they should easily be able to get another 30k. OP, it's your money but 30k is a huge amount to tie up in a friend's property. (Don't do it!!)

ognum

Never lend anything that you would be unhappy not to have returned.

MunnyBoiler

Never lend anything you cannot afford not to be repaid to you.

This situation is full of pitfalls for you and I would be walking away from the idea very very quickly......

00ec25

I am no expert on this but I think if you tried to secure your loan on their property you would be a second charge against it, as their own mortgage company would make sure it had the first charge. Shouldn't make a huge difference if the LTV is as low as you say it is

you certainly should use a lawyer. I didn't when I loaned an EX friend £15k to start a business. The money is repaid now (without a penny in interest) but it took 10 years to get it back in full, hence he is now an ex friend

what sort of term for the loan would you want?
would you expect the loan to be repaid in full if they sold the property before the end of term?

rich010273

If the bank, or other lender, pull a mortgage offer what makes you think you are making a wiser choice than them to lend?

Agree on the previous comments above on business and personal not mixing.

hartcjhart

sorry to agree with the others but it is fraught with pitfalls,

if you lend the 30k how are they going to repay it,what about the interest,if you take 30k out of the bank you lose your interest are they going to make up the shortfall,

when are they going to repay it,what if you suddenly could do with the money,

as I say sorry but best not get involved

the only safeish way would be on a joint mortgage but you would certainly need to speak to a solicitor on that one

Trollfever

Agree with the above.

PasturesNew

Don't do it.

How would you write the £30k deal into a contract if the market fell? If the house was worth double in the future? If they failed to pay the mortgage and got it repossessed? If the tenant trashes the house and they want you to sort it out and refuse to pay anything because it's all your fault because if you hadn't lent them the money they wouldn't have bought that one, if they split up, if they simply renague and refuse to speak to you .. and on, and on and on.

Let them wait until they are back in the UK.

Why do people always complicate their lives.

theartfullodger

Don't do it!

Cheers!

Lodger